Tesla Strikes Deal With Shanghai to Build Factory in China

https://www.wsj.com/articles/tesla-strikes-deal-with-shanghai-to-build-factory-in-china-1508670181?mod=e2fb&mg=prod/accounts-wsj

by prostoalex • 9 years ago

292 176 9 years ago

wsj.com

nodesocket• 9 years ago

I wonder how concerned they are about leaking proprietary technology from Chinese employees. Apple constantly struggles with this since the employees are paid little, but the incentive to leak and "share" information is very lucrative.

jorblumesea• 9 years ago

Even if they were well compensated the Chinese govt is very good at convincing people to leak or share IP with promises of huge cash rewards or career opportunities within national companies.

I'd imagine Musk would be wary of this and put the proper controls in place.

rasz3• 9 years ago

Usually they dont even have to convince anyone, the only way to build a factory in China used to be a joint venture owned by Chinese partner.

Here Tesla is willing to pay '25 percent tariffs' to avoid that, but I highly doubt it will do them any good when it comes to Cherry Model Q/Geely Electric showing up in 12-18 months build using parts interchangeable with Model 3.

ksk4• 9 years ago

Even if they were well compensated the Chinese govt is very good at convincing people to leak or share IP with promises of huge cash rewards or career opportunities within national companies.

https://www.tesla.com/blog/all-our-patent-are-belong-you

thisisit2• 9 years ago

This might not answer your point fully but in the article:

China had previously circulated a proposal that would allow electric-car makers into the country without local partners if they were to locate in the so-called free-trade zones. The government set up the country’s first such zone in Shanghai in 2013, and has since approved 10 more around the country.
Until now, foreign auto makers have built cars in China through joint ventures with local manufacturers. That allows them to avoid the 25% tariff on autos, but also forces them to split profits, and potentially share technology, with the local partner—something that has tripped up Tesla’s previous efforts to expand there.

My reading of this is, Tesla is okay with the tariff sanctions but doesn't want to share tech or profits with local partners. While that doesn't completely remove the potential IP problem, it does mitigate to a certain degree.

pweissbrod• 9 years ago

So by paying a 25% tariff, developing in china outside "free-trade" zones none of tesla technical manufacturing/design knowledge will be leaked to the government and knockoff competitors?

Good luck w/that.

One can only assume tesla expects some level of compromised proprietary secrets. Calculated risk on some level. Maye they see this as speeding up the inevitable.

Apparently they figure this risk is outweighed by the benefit of employing a manufacturing powerhouse which surpasses their US productions.

npgatech• 9 years ago

Intel has a big assembly site there (Chengdu, China) but fabs are still in the US, Israel, Ireland.

I wonder what Trump has to say about this move by Elon.

seanmcdirmid5• 9 years ago

I believe Intel tests in Chengdu, they don't need final assembly of CPUs.

Intel also has an Asian fab in Singapore, I think.

MechEStudent2• 9 years ago

None of the "magic smoke" in those chips is made in China. The "secret sauce" is all done in the US, in Oregon and Arizona. The US turns raw silicon into wafers full of chips. The plants in China, as far as I personally understand, are doing the work of cutting the wafers up, and connecting to mini-PCB boards. They are doing the labor-intensive part of the production, and nothing of the understanding-intensive part of engineering.

userbinator• 9 years ago

On a more positive note, this is largely how the 3rd-party repair industry for Apple's and other's electronic products (laptops, TVs, etc.) is fed --- leaked schematics and other documentation is very useful not just for cloning but for repair.

rdl2• 9 years ago

I thought Tesla (unlike SpaceX, due to ITAR/etc.) was pretty open with their technology. I assume Elon would be happy if all of the non-EVs in China copied Tesla. OTOH, I think the Chinese market actually already has better EVs for 90% of the Chinese market, and the market for Tesla is the high-end prestige market which wouldn't be so affected by copying (they don't copy BMWs today)

https://www.tesla.com/blog/all-our-patent-are-belong-you

rasz3• 9 years ago

Cheaper for sure, but there is always a price (burning alive in case of BYD e6 ).

miketery• 9 years ago

I believe this only applies to charging tech so that the whole industry is standardized for charging stations. I don't think Tesla shares any of their chemistry, power management, and other high value IP.

SimbaOnSteroids2• 9 years ago

I would like to take a moment to recognize that Tesla is apparently run by 90's meme lords. Check the url on that link. all-our-patent-are-belong-to-you. This pleases me greatly.

Bobbleoxs• 9 years ago

I just want to point out the grammatical error here in the title. I mean I get it - he's busy but this is a core concept and it's in the title.

jordache2• 9 years ago

What technologies are there at the production phase?

Powerful electric motors and big battery == fast and long distance.

All software will be developed in-house and pre-loaded into dash modules.

mkriss• 9 years ago

What

tristanj2• 9 years ago

Edit: The parent comment was orignally asking about linking to non-paywalled secondary sources.

In the HN guidelines https://news.ycombinator.com/newsguidelines.html

Please submit the original source. If a post reports on something found on another site, submit the latter.

Also, on paywalls https://news.ycombinator.com/item?id=10178989

typeError• 9 years ago

So knowledge should be trapped behind a paywall?

tristanj2• 9 years ago

Seems like Tesla has been eying this move for over a year. Bloomberg [0] broke this story last year (June 2016) saying Tesla planned to invest $9 billion in Shanghai, according to a 'person with knowledge of the matter'. However, one key point from last year's article is:

Manufacturing in China would allow Palo Alto, Calif.-based Tesla to avoid a 25% import levy, making its electric vehicles more competitive against luxury-brand rivals, such as BMW and Audi, as well as local offerings by BYD and BAIC.

Last year, it sounded like Tesla's motivation to manufacture in China was to avoid this tariff. Now today's WSJ story says Tesla is still likely to pay the 25% tariff. Sounds like Tesla got shafted by Chinese protectionism.

[0] Non-paywalled Bloomberg article http://www.industryweek.com/competitiveness/shanghai-said-be...

rasz3• 9 years ago

Its either 25% import tax, or 50% profit. Chinese are really smart about protecting their own economy.

Jgrubb• 9 years ago

I personally think it’ll be another 30-50 years before it’s clear whether it’s actually smart or not.

KKKKkkkk1• 9 years ago

Why is it dangerous to allow the Chinese people to buy Tesla cars at market price?

ksk4• 9 years ago

Chinese are really smart about protecting their own economy.

So is the West. Ironically, the USA was one of the most protected economies around the second world war. And GB before that.

seanmcdirmid5• 9 years ago

All SEZs (special export zones) are set up like this: they are in China, but technically outside of China for import purposes. So that iPhone that is "made in China" is actually more expensive because it is made in an SEZ and must be imported into China.

Actually going in China would require a JV (joint venture), which would likely siphon off a lot of IP that Tesla wants protected, let alone profits. China is not the champion of free trade that they pretend to be.

KGIII4• 9 years ago

Tesla will let you use their patents for free. They will let anyone use them, even direct competitors. There is no charge.

Any other IP could just be reverse engineered, for the most part.

https://www.wired.com/2014/06/tesla-just-gave-all-its-patent...

njarboe2• 9 years ago

I thought China was part of the WTO and has most favored nation trade status with the US. Does the US have such high import taxes on Chinese goods? I don't think so. Googling around I found this[1] 2014 article about unfair taxes on US cars and a win for the US in the WTO court, but maybe China just ignores that ruling. It does not seem reasonable for the US to allow China to impose taxes and force tech transfer from the US, especially since the US has such a high trade deficit with China. There was some talk about this problem during the US election, but I have not seen any action on the issue yet.

[1] http://www.latimes.com/business/la-fi-wto-autos-china-201405...

sandworm101• 9 years ago

Cars are a special thing in US trade deals. Free trade or not, the US auto industry gets special protections. This is also true of other countries (Canada, Europe etc) but is most true of the US.

fspeech• 9 years ago

The ruling was about anti-dumping taxes that China imposed as a retaliation for US imposing anti-dumping tax on Chinese tires. Anti-dumping tax is in addition to regular tariffs. Since China lost the case I assume these anti-dumping taxes were abolished.

makomk• 9 years ago

As I understand it, most favoured nation status just means that China has to charge the same tariffs on imports from the US that they charge when importing equivalent items from other countries which they don't have trade deals with. (Which probably rules out most kinds of tit-for-tat tariff policies.)

ksk4• 9 years ago

I think your comment needs a historical perspective. Protectionism and tariffs played an important economic part in the rise of all of the current world superpowers. Pretty much everyone from the USA, to GB to Sweden practiced heavy protectionism through tariffs and subsidies (which also featured in the civil war). While you can pick any window in history and adjudicate whats "fair", the alternative to "Chinese are sneaky" is that they're simply doing what others did before them to become dominant.

azureel• 9 years ago

Another non paywalled archive: http://archive.is/nRchr

omarforgotpwd2• 9 years ago

The 5% stake in Tesla Tencent took a few months ago was extremely strategic. Not only did Tesla get some much needed capital for Model 3 production, I'm sure Elon's friends at Tencent were happy to introduce Tesla to the right people in the Chinese government to make this deal happen and boost their Tesla stake. A crucial step as China will likely soon represent the biggest market for EVs (if it isn't already?). Just goes to show every entrepreneur how valuable equity in your company can be not just for access to capital, but also access to people.

sidcool2• 9 years ago

It's a bit sad that some Governments exercise so much control on businesses and knowing the right people means so much.

There should be a Goldilocks zone between Laissez-faire economy and extreme regulation.

fsloth2• 9 years ago

"...knowing the right people means so much."

Doesn't it everywhere in life? Unless one prospects gold in the wilderness, I suppose.

TheSpiceIsLife2• 9 years ago

In case anyone gets concerned that Lassie the dog isn't free, the parent comment probably meant Laissez-faire.[1]

1. https://en.m.wikipedia.org/wiki/Laissez-faire

vacri• 9 years ago

There is - just don't do your business in China or the US if you want that. Most developed countries fall in-between those two extremes.

Of course, the disadvantage is that it'll be harder for you to crack the lucrative American market...

bildung• 9 years ago

It's a bit sad that [...] and knowing the right people means so much

Isn't that called networking around here?

dalbasal6• 9 years ago

Idk, I think this characterization is a little on the naive-idealist side.

Access to people in positions of power has always been an important part of the game. Those gatekeeping peddlers of access and influence can be financiers, politicians or corporate bosses. Often, it's all mixed together.

In the west, it's sometimes been considered faux pax to emphasize the political component publicly. That generally doesn't apply to certain endevours, where the idea of doing anything big without such support is absurd. Banking, large scale construction and military industry comes to mind. If you can't get in a room with the big boys, you're not a big part of those.

I'm not against idealisation. Like power in the hands of the people, building your fortune by the sweat of thy brow is admirable and attractive morally. As ideals, they can and do shape society and history. But societies and economies are not really built like that, never have been. Power matters.

hkmurakami• 9 years ago

Knowing the right people is still extremely powerful in a free market economy.

Pica_soO• 9 years ago

What if this seperation of government and buisness exist only in your head? What if china was not a government, but a cooperation? Would you even notice? Would you complain about a cooperation doing a deal with another cooperation? Or is that thought damaging the reference frame? If a government and cooperation would be the same. The whole artificial antagonistic distinction would break down- and you would just stand there, a ranting peasant in the lower ranks of a pyramid scheme, played to hate the east side of the same pyramid..

syshum• 9 years ago

Even in Laissez-faire economy who you know is often more important than What you know. Does not matter if you are looking for millions in funding, or for a minimum wage job who you know can often be the difference between success and failure.

vkou2• 9 years ago

Where government gatekeepers don't exist, the private sector inevitably finds some way to fill the power vacuum.

ajross• 9 years ago

There should be a Goldilocks zone between Laissez-faire economy and extreme regulation.

Arguably the US spent the past five decades in exactly that region.

Also, I'm not sure that "corruption" and "extreme regulation" are really synonyms. The latter is used as a tool of the former of course, but it's not the only such tool and not all oppressive regulations are "corrupt".

eighthnate• 9 years ago

Some governments? All governments exercise control on all businesses to some degree and vice versa. Business exert control on government too.

Knowing the right people is easily the most important factor in your business succeeding, not just in china, but in the US as well.

Elon Musk's contacts in the US government is why he was able to get hundreds of millions of dollars to bailout a bankrupt tesla many years ago.

Elon's success, even with paypal, had more to do with knowing the right people and having the right information than anything else. The same with tesla.

powerapple• 9 years ago

yes, for a company like Tesla to invest in a new factory in any city, you need to know the right people, otherwise, no one is going to take your money and jobs you provided.

PinguTS• 9 years ago

Until now, Nissan is still the leader in the market. Just to remind you.

https://www.bloomberg.com/news/articles/2017-08-29/the-leaf-...

Feniks• 9 years ago

Ah yes but Tesla is an American company and the media darling.

In the real world Tesla is small time. They make only 100k cars a year and their research is being outpaced by the big corporations.

RayVR• 9 years ago

Tesla received no money from tencent. Tencent acquired their shares in the secondary market like nearly every other investor.

omarforgotpwd2• 9 years ago

Whether Tencent buys from Tesla or from someone else doesn't matter. The increased demand pushes the share price up either way. Tesla has sold shares this year, and because Tencent's buy pushed the share price higher Tesla saw more proceeds from the same number of shares than they would have had Tencent not acquired a 5% stake.

mozumder• 9 years ago

Why are there still import tariffs in the US?

averagewall2• 9 years ago

Because Americans prefer to vote for politicians who take payments from industry groups in exchange for setting tariffs that protect them from international competition.

swimfar• 9 years ago

Are there car-producing countries that don't have import tariffs?

martin1975• 9 years ago

This should be a boon for China's air quality if they start to mandate EVs and ban fossil fuel vehicles. They are suffering from major, major pollution that makes 70's LAX smog look like child's play

jayd16• 9 years ago

I'm not sure EVs are going to make a difference unless they move from coal plants to something else.

harryVic• 9 years ago

Coal plants are more efficient than internal combustion engines.

SideburnsOfDoom2• 9 years ago

As is customary in these discussions, the "Long Tailpipe" falacy has been raised again.

https://en.wikipedia.org/wiki/The_long_tailpipe

http://www.casteyanqui.com/ev/longtailpipe/

Mr Musk's criticism of it is in here https://www.tesla.com/blog/secret-tesla-motors-master-plan-j... Section starting "Power Plant Emissions aka “The Long Tailpipe”"

dis-sys2• 9 years ago

People need to understand that 25% import tax is a feature not a bug, it allows Tesla to be classified as imported cars, separating itself from a long list of American/German cars made in China with a local partner. There are huge demand for such "imported" cars. Look at Porsche, every single one of its cars are imported into China with stupidly high taxes, yet 1/3 of its global sales are in China, you need to wait 3-6 months to get the most popular models (Macan and Cayenne).

dagw• 9 years ago

I've heard that it's the same with Volvo. Volvo Cars is a Chinese owned company with manufacturing in China, but upper middle class Chinese happily pay a hefty premium for an imported Volvo made in Sweden.

wingerlang• 9 years ago

Someone told me the same applies in Thailand. Something about owning a Porsche (etc) showed more than normal wealth because you know they pay a huge extra on top of the already high price.

That was the gist of it anyway.

yourapostasy• 9 years ago

Can a "cultural translator" explain why the Chinese consumer market is so highly susceptible to Western marketing of import brand marks, for highly-specific products, when otherwise they appear strongly nationalistic?

This doesn't seem to broadly carry over into all products. My gut-feel impressions from visiting China: Cars, yes. Phones, no. Scotch, yes. Watches, no. Clothes, no. Houses, no. Household appliances, no. Bottled water, no.

Americans have their yes/no list, various European citizens have theirs, and so on. And there are sub-groups (like I'm aware of a market for ultra-premium watches with 5-figure+ USD price tags among some hedge fund types), but I'm interested in characterizations at a broad national level. I'm curious to hear from Chinese or Chinese culture-fluent what factors in their opinions went into the make up the Chinese national variant of this list.

fastball• 9 years ago

I'd just like to modify your list in that I think wealthy Chinese consumers are highly susceptible to certain designer clothing and accessories, ala Gucci, Louis Vuitton, etc.

I think everything else can be explained by a sort of clash between utilitarianism and a desire for status symbols. Tools that can be readily copied in China and produced much more cheaply are sold as that: tools. So phones, watches, appliances, etc. Cars and clothes can also be readily copied, but even in the west they show more status than the other things listed. So when it comes time to copy them, it's more apparent when you have a Chinese knockoff vs. an "original".

Scotch is hard to copy.

icc972• 9 years ago

I think a better comparison is whether the Chinese prefer a VW Jetta built in China as part of the FAW-VW joint venture or a German built one.

Luxury cars will always typically be built in the country of origin as they're not mass market.

mproud2• 9 years ago

Imported typically means it was sold in a foreign market first before the U.S. Not the case here with Tesla. People know them as an American company, just like Apple is an American company that imports products made in China.

j05huaNathaniel• 9 years ago

Bye bye US Government subsidies.

MechEStudent2• 9 years ago

China doesn't believe in IP. Tesla should look within 1-2 years of startup of a Chinese plant for there to be other Chinese plants producing the exact same parts, but not for Tesla. If Tesla puts its "magic smoke" into that factory, they have given it away to multiple competitors.

ZeroGravitas2• 9 years ago

That would however be in line with Tesla's stated mission:

The Mission of Tesla. Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.

k_lander• 9 years ago

Isn't that what Elon Musk wants though?

agumonkey• 9 years ago

Could this be made difficult by obfuscating some sensitive part production through US made black box that stay controlled at the factory. No tesla black box, no nice tesla part oob, head start kept ?

throw6555• 9 years ago

To be read as the beginning of the end of Tesla factories in the US.

mproud2• 9 years ago

I doubt Tesla will give up on their U.S. factory, unless the company ever enters dire financial trouble. There have been (and still are) major auto makers with factories in the U.S. It is to their advantage to operate more than one factory if ever there are labor issues, governmental issues, or even natural disasters that could stop production.

sanguy2• 9 years ago

I suspect US will be reserved for high end S/X models, with the model 3 likely majorily in China.

jordache2• 9 years ago

now let's see if chinese made teslas will be of higher quality than U.S. made units. The bar is set pretty low right now to surpass U.S. Tesla build quality.

logfromblammo• 9 years ago

This stinks of my cynicism, but I hope Tesla doesn't mind competing with unbranded, unlicensed Chinese copies of Tesla-designed vehicles.

Based on their blanket grant of royalty-free patent licenses, I wouldn't think so, but that might just be the sort of idealism you see when a competitor doesn't have you up against the ropes, pummeling the snot out of you. It's one thing to go read the patents and maybe add the parts you understand to your product. It's another thing entirely to be able to observe an entire functioning assembly line and copy it down to the millimeter.

And that is something that will happen to any factory Tesla sets up on mainland China. Then they start chopping off the more expensive bits. Tesla must be betting that the x% of the Chinese market that cares about brand and can also afford to pay for genuine goods would buy a real Tesla instead of a nigh-identical knockoff, at rates high enough to be significant against the 25% tariff. That kind of financial math is beyond my expertise, though.

sanguy2• 9 years ago

Wonder how this will impact the model 3 backlog. Many of the Tesla fans have bought into the US made, green, and disruptive angles - in various levels of importance.

Will be interesting to watch how the backlog develops with this change. Could be quite significant.

Also if we factor in the layoffs last week in California and now this move how long until Trump takes a punch on Twitter as Tesla?

Tesla Strikes Deal With Shanghai to Build Factory in China

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